A 401(k) is an example of which type of plan?

A 401(k) plan is classified as a defined contribution plan. In a defined contribution plan, both employees and employers can contribute to the employee's individual account, and the future benefits received depend on the contributions made and the investment performance of those contributions. The employee has the ability to choose how their contributions are invested among various options provided by the plan, typically including mutual funds and other vehicles.

The named account can grow tax-deferred until withdrawals are made, often at retirement. This type of plan contrasts with defined benefit plans, which promise a specified monthly benefit at retirement based on a formula that typically takes into account factors like salary history and years of service.

The other choices do not correctly describe a 401(k) plan. Traditional savings generally refers to regular savings accounts that do not have the retirement-focused tax advantages of a 401(k). A retirement annuity is a financial product that provides periodic payments to an individual, typically in retirement, but it is not the same as a 401(k). These distinctions help clarify why a 401(k) is best categorized as a defined contribution plan.